Greek Organisation of Football Prognostics SA

ATHEX:OPAP

Earnings Call Analysis

OPAP Reports Q3 Performance and Outlook

OPAP S.A. has maintained a resilient business model in Q3 2023, facing a moderate decline due to Sports Betting's customer-friendly outcomes and Tzoker's poor jackpot trends. Despite these setbacks, the company shows solid growth in retail and strong advancements in the online segment, pinpointing its potential as a future growth engine. The interim dividend of EUR 1 per share culminates to EUR 2.15, marking a significant shareholder return. Facing economic and sector hurdles, OPAP projects a recurring EBITDA for 2023 between EUR 720 million and EUR 740 million.

Demonstrating Resilience in the Face of Lower Performance

The company has shown a certain level of buoyancy with a moderately lower performance, primarily due to customer-friendly sports betting results and unfavorable jackpot roll-overs in the lottery segment. Despite these drawbacks, the company has maintained solid growth in retail and strong online performance, hinting that the online realm is poised to become a key driver of future growth. Contributing to shareholder value, the company has proudly distributed one of the highest remunerations to its shareholders, with a recent interim distribution of EUR 1 per share, totaling EUR 2.15 per share to date.

Looking Ahead: EBITDA Target for 2023

In the face of macroeconomic challenges and with a reverberating impact from industry-wide factors, the company has set its recurring EBITDA target for 2023 between EUR 720 million and EUR 740 million. This forecast excludes a GBP 25 million fine from the Hellenic Competition Commission, ensuring a like-for-like business operations evaluation.

Sportsbook Margins, a Volatile yet Integral Component

Sports betting margins have demonstrated variability, a factor that management perceives as inherent and manageable within the business model. The company has experienced low margins moving into the fourth quarter, particularly in October. However, a marked improvement was noted in November, fueling optimism for a resurgent margin landscape.

Online Business: Leveraging Multi-Disciplinary Success

The company acknowledges its online business, particularly sports betting, is trailing expectations. However, significant efforts are underway to enhance the customer proposition, journey, odds, and digital experiences, fostering greater customer loyalty. Stakes remain high for a robust performance in the coming year, with plans to enrich casino offerings and evolve the lottery segment to increase engagement and drive further growth.

Lottery Segment and the Path to Normalization

Lottery results were significantly influenced by an unusual pattern of jackpot roll-overs, resulting in a double impact magnified by favorable roll-overs in the prior year. Nevertheless, the typical normalization of jackpot series is expected over time, with the company affirming its belief that these anomalies are not indicative of longer-term trends.

The Invaluable Role of the OPAP Store App in Retail and Data Insight

The OPAP Store App is central to the company's retail strategy, adding a new dimension of customer interaction and loyalty rewards, while also enabling on-device play and personalized customer experiences. From the corporate vantage point, the app is proving to be a goldmine of precious data, offering insights into customer behavior, playing patterns, and responses to new propositions. This data is projected to translate into millions of euro in GGR upside by 2023 and 2024, deemed critical for sustaining and enhancing the company's retail footprint.

Earnings Call Transcript 2023-Q3

[Operator]

Ladies and gentlemen, thank you for standing by. I'm Kostantinos, your Chorus Call operator. Welcome, and thank you for joining the OPAP S.A. conference call and live webcast to discuss the third quarter 2023 financial results.

Please note, a video presentation has been distributed and is also available on the OPAP Investor Relations website. [Operator Instructions] And the conference is being recorded.

At this time, I would like to turn the conference over to Mr. Jan Karas, CEO of OPAP S.A. Mr. Karas, you may now proceed.

[Jan Karas, executive]

Thank you very much, Konstantinos. Good evening or good morning to everyone, and welcome in our regular Q3 2023 results conference call.

This quarter demonstrated the resilience of our business model despite moderately lower performance, mainly due to customer [friendly] results in Sports Betting evident across industry and Tzoker's unfavorable jackpot roll-overs. Overall, though, in the first 9 months, we delivered solid growth in retail and strong online performance, indicating that the online business is well on track to evolving as a key growth driver in the coming years.

We are also happy for the recent interim distribution of EUR 1 per share, contributing to a total of EUR 2.15, which ranks among the highest ever remunerations to our shareholders.

Ahead of macroeconomic and industry-wide challenges, we set our recurring EBITDA target for 2023 to range between EUR 720 million and EUR 740 million. Hopefully, you have reviewed and enjoyed the results video we shared with you earlier today. So we will jump directly to our Q&A session. Konstantino, over to you.

[Operator]

[Operator Instructions] The first question is from the line of Draziotis, Stamatios with Eurobank Equities.

[Stamatios Draziotis, analyst]

My first one is on the sportsbook margin, and just wondering about the extent to which there has been a normalization of the football season has been developing in recent weeks.

And secondly, on the [Betano] earn-out, just wondering, you received the EUR 120 million in Q3 2023. And if I remember correctly, the total consideration recognized as receivable in FY '22 was EUR 130 million. So I'm just wondering whether this is still the case, i.e., if you could tell us the extent to which there are further receipts that you expect related to the agreed earn-out scheme, please. Thank you.

[Jan Karas, executive]

So I will take your first question regarding the Sportsbook margin. As you have heard from me in the presentation shared with you earlier today, we certainly consider Sportsbook results volatility and inherent and well-managed part of our business. So as such, in terms of expectations, we certainly expect for a significant normalization of the -- what our trend till the end of the year. And the early weeks of November gave us good and encouraging results in that direction. So we will see how the year ends, and we will certainly have updates on this front for you in our next quarterly call. I will hand over to Pavel for the second part of the question.

[Pavel Mucha, executive]

Good afternoon from me. What you referred to -- the figures you referred to were correct. So indeed, we already received vast majority of the earn-out. We also distributed it as part of our recent interim dividend just a couple of weeks ago. And so the remaining to be seen is relatively small. Vast majority of the earn-out has been received.

[Stamatios Draziotis, analyst]

Okay. Great. And just if I could follow up on this please. So there hasn't really been any change in the estimated amount of the earn-out based on the performance of the business. Is that correct?

[Pavel Mucha, executive]

No -- that's correct. Yes, we made a very conscious decision when we were estimating the performance and recording the earn-out. And so it holds as it is.

[Operator]

[Operator Instructions] The next question is a follow-up question from the line of Draziotis, Stamatios with Eurobank Equities.

[Stamatios Draziotis, analyst]

Yes. Could you just maybe elaborate a bit on your own online business, which seems to have been a bit down year-on-year. I suspect this is primarily because of the Sportsbook margins. But if you could share with us what you've been doing to ramp up this segment in the last few months.

[Jan Karas, executive]

Very good question. We -- if you -- if we look across the three main verticals: lottery, casino and sports betting. Starting on the lottery side. As you know from our previous updates and presentations, that is a new kid on the block that we are continuously evolving and developing, and a lot has changed, a lot has evolved in this proposition throughout this year, which has been reflected also in the result where we are seeing double-digit growth year-over-year. But we still believe that this is a journey, and we have a lot in our kitchen coming for next year, whether we want to expand further the entertainment destination notion of the whole online proposition.

So you will see more from us on that front, and we are optimistic on being able to further engage customers and bring more people to our proposition. So it's certainly a category where further growth is expected to continue.

In Casino, similarly, we have had significant growth year-over-year, and that we have no lesser ambitions going forward. So we want to continue to grow, and we are excited about the competitiveness of our proposition, but it can always get better. So our product and proposition development plans are certainly rich in this area as well.

Sports betting, as such, is, at this moment, slightly behind our expectations. We are working a lot this year on improving the sports betting proposition across many fronts. There is honestly no short answer because if you are a bit involved in sports betting, you know that success in sports betting is conditioned by multi-disciplinary success. There is a lot of boxes that you need to tick to make the customers happy, ranging from customer proposition, customer journeys, odds, these digital experiences, loyalty.

So it's a very complex exercise, and we are trying to improve across all the fronts. And we are also seeing encouraging results there. Yet this vertical for now is behind our expectations and we have -- we believe that next year we should be able to ramp up the performance and make it another successful vertical for us following the product and proposition development that we are working on.

[Operator]

The next question is from the line of Pointon, Russell with Edison Group.

[Russell Pointon, analyst]

Pavel. Just a couple of questions first, if that's okay. First question is you changed the EBITDA guidance, but there's no revenue guidance. I'd be interested in your thoughts on why that is and what those uncertainties you see there that means you haven't given guidance.

Second question, on the lotteries, Tzoker was -- obviously the comparatives were probably well known, that kind of thing. So has there been any change to your expectations for the lottery, i.e., this is just something that was -- you always knew was going to happen in Q3, and therefore, return to normal in Q4? They're my two questions.

[Pavel Mucha, executive]

So yes, I think we communicated the reasons for the change of guidance quite clearly. So it was certainly the customer-friendly results in Q3 on the sports betting, and it also continued into October. So also in October, the margin in sports betting was very low. So that was one reason.

Second reason, very really unfavorable jackpot roll-overs. And it was complemented by tough year-on-year comparisons because, vice versa, extremely favorable jackpot roll-overs in Q3 last year. So it was kind of a double impact, which really amplified the lottery performance.

So certainly, our guidance change is not only driven by the sports betting, as is the case across the industry, but on lotteries, they also have a fair share in the guidance revision. So the Tzoker performance, and it was really record low jackpots over the last 5 or 6 years, what we experienced in Q3. So that's driven not only by sports betting and lotteries, plus really the [ flats ] and fires, which we had.

Now whether -- you were asking on Tzoker whether that was something to expect and that it will normalize for sure over the long term, the sort of jackpot series, it always normalizes. So I cannot say it will be exactly in Q4, but certainly, the performance in Tzoker in Q3 was nothing that could be forecasted or foreseen. And in the long term, the jackpot games always normalize.

[Russell Pointon, analyst]

Okay. And just may I follow up on the sports betting, please. From memory, I may be wrong, but I think in Q4 last year, you thought the betting around [indiscernible] was relatively disappointing versus perhaps initial expectations. So therefore, with more normal sports calendar this year, sports betting should see a good fourth quarter, I would assume. Is that a good assumption?

[Pavel Mucha, executive]

Well, fourth quarter didn't start particularly well related to payout, yes. So related to payout quarter -- for October, which is the first month of the fourth quarter, even lower margin than what we saw in September. On the other hand, November is pretty good margin. So again, in sports betting, typically, the margin normalizes.

Now in terms of the World Cup last year versus no World Cup last year, the World Cup last year was an unusual period at the end of the year, where typically the football calendar is very rich in Q4. It was replaced by the World Cup, which had excellent foot fall. But again, disastrous payout across the industry, so we didn't have such good results. So I believe, generally, not having World Cup in Q4, having normal calendar with normal matches typically brings better margin than the World Cup, where especially at the later stages of World Cup or Euro, typically, the favorite wins and the margin is not great. So yes, calendar-wise, the margin should be better in Q4 '23 compared to Q4 '22.

[Russell Pointon, analyst]

And finally, can I just confirm your guidance recurring EBITDA? Does that include the new GBP 25 million fine that you've suffered in the third quarter?

[Pavel Mucha, executive]

No, it does not. It's a recurring EBITDA. So it is excluding the fine. It is a like-for-like business, normal business operations, EUR 720 million to EUR 740 million. So it is less the GBP 25 million fine from Hellenic Competition Commission.

[Jan Karas, executive]

Would you like to repeat your question around Tzoker? We were not sure here we understood correctly.

[Russell Pointon, analyst]

Yes, I think the question was essentially within your annual thoughts on the business, you would have known about the tough comparative from the third quarter last year, so it's trying to work out whether what is genuinely new in the lotteries business.

[Jan Karas, executive]

Alright.

[Operator]

The next question is from the line of Puri, Karan with JPMorgan.

[Karan Puri, analyst]

Just had a quick one on your commercial growth initiatives, specifically the OPAP Store App and VLTs cabinet upgrade. Is there a way to quantify the impact it's having on your play engagement and play activity? What, [guys] you think about it?

[Jan Karas, executive]

I will try to take it separately because these are two quite different topics. So in terms of VLTs cabinet refreshment, we are certainly very carefully following the -- and tracking the commercial upside coming out of it because, for us as a company, together with our VLT cabinet vendors, this is an investment that obviously should have return on investment. And now as for the specific numbers, that is also a broader perspective and there is all the other changes that we are doing at the same time in the shops, the shop look and feel, shop design, training of people, network development, replacement of agents, replacement of stuff, and even, very importantly, in the shops, all that has an influence on revenues.

So if your question is, if we are satisfied with the contribution of covenants upgrade, the answer is yes, and that both from the GGR upside coming from the new cabinets as well as the customer satisfaction that we are tracking about the cabinets. At the same time, we need to keep in mind that refresh of the VLT cabinets, it's absolutely necessary. So it's not that VLT cabinet refresh comes always as an incremental revenues. There is also a protection of the existing ones, because if you wouldn't be doing it, the revenues and customer interest and activity would be declining.

So I don't know if it covers your question or interest on the VLTs or you want to ask something more...

[Edward Young, analyst]

That's really helpful.

[Jan Karas, executive]

And another question on OPAP Store App. OPAP Store App has several dimensions of benefit. Honestly, this is an essential element of digitalization in stores. So looking at it from a customer perspective first, it's providing, and I think that's the most important driver today, is providing recognition and appreciation to our customers in the form of loyalty. So the more the people play with us, that they are with us, they are interacting with OPAP, they're playing our games, all the [distract] in the app in the form of scanning and [indiscernible]. And we reward their behaviors through the loyalty schemes with various rewards.

That adds not only to the feeling appreciated as a customer element, but very importantly, to the essential factor of gamification. So there is always something more behind the essential asset of replacing a bet and winning and losing. So we also see from the customer backing that gamification of the whole experience, that extra Wheel of Fortune that the customer gets the next day, the different bonuses that he receives from us is certainly appreciated.

And just to highlight the latest development in this front since this summer, all these loyalty features and benefits are providing -- provided live. So the moment the customer does something, we are able in a live manner to react on that. So that's something that is a major step change compared to previous year when all these activities were happening next day. So data were assessed and the next day the actions will have been done. Now it's all live.

Likewise, the second dimension of our customer benefit is the ability to play on your device. So you don't -- when you are in the store, you can enjoy the comfort of your chair or couch, watch the screens and place your bets on your phone. We have completely removed, for those who want to, the repetitive journey of coming to the counter, finding cash in your pocket and constantly standing up, sitting down, standing in the queue. And that is, again, appreciated by a very large part of the customers. Namely, we had, as you can see in the slides, dozens of thousands of people playing on their device in the latest period. So that's a great success because that's what the next day of retail is about.

And last but not least, the third dimension from a customer point of view are the personalized experiences. If you come as an anonymous person to a store, you are just another customer like anybody else. And while the agents are obviously adding a layer of personal treatment, for occasional customers, that's not something that is present. So that's where the app kicks in, and we can, as OPAP, communicate with our customers directly, give them tailor-made offers, welcome them, thank them, wish them happy birthday, many different things that simply make the experience just one notch more personal. And that across industry as an extremely important element these days.

Now from the OPAP side, we are obviously gathering extremely precious data. Data is king, and moving from the past where we were blind in the store, what customers are playing, how exactly they are playing, how often they are playing. We didn't know anything. All we knew is total revenues and total number of slips. But now we know, for hundreds of thousands of active players every month, how they play, how they behavior evolves, what are the patterns of their playing, how our new propositions are reacted on. So a tremendous amount of data that you can imagine are obviously of a great value.

In terms of numbers, because you are certainly interested in numbers, when we look both in 2023 as well as looking forward to 2024, we are talking about millions of euro GGR upsides created by leveraging the data. And I'm only referring to direct impacts. When you think about the benefit of know-how we are getting, we are probably talking about a tremendous value that will be essential for protecting our assets of retail and further evolving retail.

From our point of view, strategically, OPAP Store App is the future of retail and essential to those digital experiences in the store that are so important for the next generation of players.

Sorry for a bit extended answer, but I hope this is interesting for all the audience to know and hear how we think about it. And this is for you to know one of the major things why we believe we continue to be so strong in retail where many have forecasted 5 years ago that retail will be inevitable and continuous decline. Thank you.

[Operator]

The next question is from the line of Kourtesis, Iakovos with Bureau Securities.

[Iakovos Kourtesis, analyst]

First question has to do with your agency network especially after the floods. Do you have your whole network operational after the floods? And if not, how many stores are closed at the moment?

Second question has to do with Tzoker. You plan to reposition Tzoker [indiscernible] games dynamics as of December 2023. What will be your strategy there? If you could elaborate further on this, in order to avoid any cannibalization by the Euro Jackpot launch in first half 2024.

And third thing has to do with this one-off operating expense about the litigation by the Hellenic Competition Commission, the provision of EUR 24.6 million. But I was wondering if you could share with us if you have in mind or any info about the potential time frame that you will have a result with the Greek courts on this thing about your petition to file against this decision. What do you expect, for example, at some point next year? That will be my questions.

[Jan Karas, executive]

Thank you very much for your questions. Very interesting. So floods, simple and short, the damages caused by the floods were to a very large extent recovered. At this moment, we have a single-digit number of stores out of operations, 4 or 5, something like this. So very minor impact at this moment in terms of stores operation. Obviously, the psychological impact in the -- and financial impact in the communities affected is something that will take more time to recover.

Tzoker, thank you very much for the question. We are very excited about the upcoming changes of Tzoker. The changes are -- the reason for changes of Tzoker are two-fold. We certainly felt that the game deserves refresh and upgrade, and we certainly believe at the same time now is the right time with the upcoming launch of EuroJackpot, so that as presented in the video presentation to you earlier, the overall draw-based games portfolio gets a completely new overhaul.

So what is it that we are cooking with Tzoker? We will be -- the essence of Tzoker will remain unchanged. So you still will be able to win a couple of millions in jackpot. Newly, this will start from EUR 1 million, not from EUR 600,000 like until now. So main prize will always be about millions of euro. But the key new benefit and the key justification also of the prize increase is that we are changing the game in a way that the second prize will always be EUR 100,000 fixed. So whenever you will win second prize, irrespective of how many other winners are there, you will always win EUR 100,000. That means hundreds of winners of EUR 100,000 second prize a year. The winnability of the game will be taken to a whole new level. Because we know from a customer research that EUR 100,000, for absolute majority of our customers, is considered a life-changing amount. And thus, the element and the essence of life-changing winnings with Tzoker will remain. But we will be talking about hundreds of thousands of euro or millions.

EuroJackpot, when it comes, is a completely different level of proposition. This is about winning hundreds of millions. So think of it, the whole positioning will be kind of a billionaire's life, life-changing thing. For those of you familiar with Euro Jackpot, you know how it communicated all around Europe. So it will be no major difference in Greece. And as such, this is more really about buying a ticket to dream of possibly winning even billions of euro, while most of the customers are buying this dream being well aware that its probably is very low.

Euro-jackpot -- sorry, Tzoker, on the other hand, the new Tzoker should be about I believe there is a pretty high chance that I'm going to win at least EUR 100,000. That's the perception we want to create. And you will see a major venerability campaign where we will provide clear proofs to the customers that people are winning and that several people a week are winning EUR 100,000.

So we are excited about this change. This will be a very interesting refresh of our portfolio. And accordingly, we have positive expectations that this should certainly help us protect the revenues of Tzoker when EuroJackpot will be arriving.

And your third question was what about the one-off, Pavel will comment.

[Pavel Mucha, executive]

Yes, your question was about the appeal. Indeed, we strongly disagree with the decision of the Hellenic Competition Commission. And we have exercised all the options and what are the available legal means. And that led us to filing a petition against it before the Athens Administrative Court of Appeal. This was filed really recently. And at this stage, we do not have any visibility how long this may take to resolve. So it's difficult to comment and estimate.

[Iakovos Kourtesis, analyst]

Just a follow-up on Tzoker. You referred to the change of winners, second prize will always be EUR 100,000, which seems very attractive. Will the prizing per column remain the same? Or do you plan any changes to your prizing there?

[Jan Karas, executive]

Sorry. I was checking with my colleagues because I thought we spoke about it earlier. We will be increasing the column prize to be able to subsidize the winnings increases, significant winning increases that I was referring to.

[Operator]

[Operator Instructions] Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Karas for any closing comments. Thank you.

[Jan Karas, executive]

Thank you very much, Konstantino, and thank you very much, all of you for being with us today. Our IR team, as always, will be looking forward to answer any other questions you may have now or later and deep dive in your inquiries.

We are now focusing on Christmas and New Year's Eve commercial initiatives aiming for a strong year-end. Thank you very much, and have a great day. And I hope it's not too early to wish you all and your loved ones a joyful Christmas period. Thank you very much. Have a great rest of the day.

[Operator]

Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for calling, and have a good afternoon.